Some TV executives are crowing about the pending boom in
advertising, which we believe could not only help broadcasters and
media companies like CBS (
CBS
), Viacom (
VIA
) and Disney (
DIS
) as well as satellite pay-TV providers like DirecTV (
DTV
) and Dish Network (
DISH
).
Our price estimate stands at $48.63
which is roughly a premium of 7% to the market price.
A recent Reuters article states that television executives are
banking on a white-hot season for advertising sales that could lift
price by 10%, driven in part by a resurgence in ad sales from
automakers and telecommunications companies. So we asked ourselves
as the TV advertising market gains, how does DirecTV
benefit?
We estimate that DirecTV's advertising division in the U.S.
constitutes close to
9% of DirecTV's value
. The company should be able to grow its advertising revenues
significantly over next few years given the improvement in the
market in general, and some other factors. Below we discuss
these.
TV advertising market improvement
CBS has stated that for its program
CSI:Crime Scene Investigation
, advertisers have offered very attractive prices to buy
last-minute ad slots. This is called scatter marketing and ad
prices for this market have gone up by as much as 35% to 40%
compared to the initial ad slots sold at the beginning of the
season in 2010. While broadcast networks are seeing strong growth,
cable networks are also benefiting. Cable network companies like
Discovery Communications and Viacom have said that they are
witnessing significant improvements in ad pricing as well.
According to a study by SNL Kagan in 2010, the advertising
market in the U.S. was recovering and is expected to continue to
grow in 2011. The research firm also mentions that while
broadcasters will show the strongest growth, cable networks have
been also been attracting a lot of advertisers as well.
Other factors aiding DirecTV's advertising revenue
growth
Apart from general improvement, DirecTV has the opportunity to
boost its advertising revenues by focusing on local advertising and
interactive ads that are likely to bring it more business. In
addition to this, increasing penetration of DVR should aid
DirecTV's ad revenues. With DVRs, customers have the option to skip
the ads which initially was a cause of concern for advertisers.
However according to Nielson, about 46% of the viewers of major TV
networks in the U.S. that belong to age group of 18-49 tend to
avoid skipping commercials during playback on DVR. This is
especially beneficial since most commercials are targeted at this
age group. So rather than hurt TV's business, it seems that DVRs
are helping increase TV ratings of shows that reflects in ad price
increments.
You can see
the complete $48.63 Trefis price estimate for
DirecTV's stock.